The age old secrete scheme that made bankers wealthy

Banks came about because gold was too heavy and cumbersome
to carry around. In the early days it was actually men who carried purses because they had
gold in it. But you can imagine that large transactions involving bars of gold
can be very strenuous which is why banking became useful So you would place
gold on deposit and the bank would issue you a deposit receipt, a certificate
of guarantee or bank note later became known as money.

Businessmen would
exchange a banknote which was the proof of how much gold he had on deposit for
goods and services then the merchant could go to the bank present the banknote to take possession of the gold or just exchange again with another merchant.

In those days each town had its own bank and printed its own
notes. The number of notes issued was determined by how much gold reserves each
bank had in its vaults.

The bankers realized that only they knew how much gold they
really had on deposit. So, they took advantage of that opportunity by printing
more notes than they had gold. Since the banknote was as good as gold people
readily exchanged it and the bankers became wealthy off this scheme.

That was
the beginning of the pyramid scheme that continues to this day. They knew that it
was unlikely that every depositor would come to withdraw their gold at the same
time so they just recycled the deposits and withdrawals.

All gold looked the
same anyways and was measured by weight. If you would allow me to get a bit
conspiratorial for a moment and note the image of the pyramid on the current
version of the U.S Dollar bill. Eventually, larger banks took over the local
banks until there was only one central bank that provided money to all the
local banks the value of which was based on gold.

Then they made it official, the fractional
lending system which made it legal for banks to lend out more money than the
value in its vaults. Thus, if the reserve requirement is 10%, a bank that
receives a $100 deposit may lend out $1,000.